Inside the Black Hole

Fraud and chargebacks are the two biggest payment processing-related issues card-not-present merchants have to deal with. If you’ve managed an e-commerce business for any length of time, I have no doubt that you are fully aware of that. Something else that I’m sure has also not escaped your notice is that the two typically come together and you only learn of the fraud when you receive the resulting chargeback.

This is exactly the case with Reason Code 83, which is used to designate chargebacks resulting from processing fraudulent card-absent transactions. In this article I will review the circumstances when issuers use this reason code, how you can respond to it and what you can do to prevent it.

What Causes Reason Code 83

Chargeback Reason Code 83 is used by issuers when they receive a complaint from one of their cardholders who claims that she neither authorized nor participated in the card-not-present transaction at issue or when it was charged to a fictitious account number for which an authorization approval was not obtained. The immediate causes for this chargeback can be one of the following:

• The merchant charged a transaction to a card account that was fraudulently used or
• The cardholder did not recognize the merchant name associated with a transaction on her statement.

Card-not-present transactions include mail order, telephone order (MO / TO), internet (e-commerce), pre-authorized health care transactions, recurring and advance payment transactions, and no-show fees.

How to Respond to Reason Code 83

Listed in the table below are the most likely circumstances you may find yourself into when considering your response to a Reason Code 83 and my suggestions on the course of action you should take:

*AVS and the security codes are fraud prevention tools developed specifically to be used in card-absent transactions. In some cases they provide merchants with a re-presentment right, but do not directly prevent chargebacks.

How to Prevent Reason Code 83

The following best credit card acceptance practices should be implemented:

• Always obtain an authorization approval. All MO / TO, e-commerce and recurring transactions must be authorized, regardless of the dollar amount.
• Read back the account number. For telephone transactions, always verify the account number with your customer to avoid errors.
• Identify the transaction as card-not-present. Use the appropriate code to identify transactions as mail order (“MO”), telephone order (“TO”) or e-commerce (“ECI”) during both the authorization and settlement process. Typically, this will be done automatically by your payment processing system, or by pressing a MO / TO indicator button.
• Use AVS and the security codes. These services are designed specifically to help prevent card-not-present fraud.
• Ensure that your billing descriptor is set up correctly. The way your business name appears on your customers’ transaction activity logs and monthly statements is managed through a tool called “billing descriptor.” Typically, it is set up to display your “doing business as” (DBA) name, although some processors may use your legal name as a default setting. Work with your processor to ensure that the billing descriptor is set up to display the name that is most familiar to your customers, as well as that all other information (e.g. city and state, phone number, internet address) is accurately identified.

Be advised that you are protected from a Reason Code 83 chargeback if the transaction has an Electronic Commerce Indicator (ECI) 5 or 6, indicating a Verified by Visa transaction, so make sure that all of your transactions are accurately identified.

The Takeaway

You cannot prevent all fraudulent transactions that can lead to a Reason Code 83 chargeback, as criminals often have access to all information needed to successfully complete a card-not-present transaction, even when best payment processing procedures are followed and available fraud prevention tools used. However, you can greatly minimize the chance of that happening, because most criminals are not all that sophisticated, nor do they always have all of the account information available to them. This is precisely the type of fraud you have full control over and preventing it should be your top priority. A success on that front will have the beneficial side effect of limiting Reason Code 83 chargebacks.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management Kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

In recent articles we have reviewed several reason codes issuers use to designate chargebacks caused by processing errors. Various actions can lead to such errors, but one of them stands out above all others: processing a single transaction more than once. Now, as far as processing errors go, I don’t think any other comes closer to the definition.

To an outside observer it may seem that this type of chargeback – Reason Code 82 – can only be caused by merchant fraud. After all, you can’t inadvertently process the same transaction twice, can you? Well, as it happens, even though fraud is a real possibility, more often than not such chargebacks are indeed caused by an error, rather than by design. Let’s take a closer look.

What Causes Reason Code 82

Chargeback Reason Code 82 can be initiated when the merchant:

• Enters the same transaction into the point-of-sale (POS) terminal more than once.
• Electronically submits the same batch of transactions to its processor more than once.
• Deposits with its processor both the merchant copy and the acquirer copy of a sales receipt.
• Deposits sales receipts for the same transaction with more than one processor.
• Creates two or more transaction receipts for the same sale.

Although it may seem as if most of the above actions may only have been taken intentionally, in reality that is very unlikely. See, such discrepancies are discovered immediately and, if processed, the transactions are automatically charged back. So not only does the merchant not benefit in such circumstances, but it is charged a penalty fee, is subjected to a closer scrutiny and it may even have its merchant account frozen until the processor is satisfied that its merchant is processing transactions by the rules.

How to Respond to Reason Code 82

Listed in the table below are the most likely circumstances you may find yourself into when considering your response to a Reason Code 82 and my suggestions on the course of action you should take:

Most processors automatically check if a credit was processed, so you may never see the chargeback.

How to Prevent Reason Code 82

Following best credit card acceptance practices, as always, can help you prevent this type of chargeback. Paying attention when depositing transactions helps too. Here are some specific suggestions:

• Review sales receipts prior to depositing them. Doing so will help ensure that only the processor’s copies – and not the merchant’s copies – are included in the batch. If you send transactions electronically for processing, ensure that each batch is sent only once and has a separate batch number.
• Enter transactions once. Make an effort to avoid entering transactions more than once.
• Void duplicate receipts. If caution fails you and a transaction is entered twice by mistake, immediately void the duplicate. Also void the associated sales receipts.
• Train staff. All new POS employees should be trained on matters concerning duplicate transaction processing, cancellation, and voiding procedures and refresher training should be provided to existing personnel. Back-office staff should be adequately trained on transaction deposit procedures.

The Takeaway

Reason Code 82 has more to do with a lack of attention on the part of the merchant than with anything else. However, carelessness is not an excuse and, while unintentional, such errors are just as costly as any other action (or inaction) that can cause a chargeback. It is up to the management of each business to ensure that proper attention is paid to the processing of every transaction, adequate training is provided and, if duplicate transactions occur often, to discuss the issue with the staff responsible for them.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management Kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

Payment processing errors come in various shapes and forms, all of which can easily result in a chargeback. In a face-to-face environment, processing errors are far more likely to result from a key-entered transaction than from a swiped or a chip-read one, which is why you should try to keep key-entries to a minimum. Yet, errors can also be committed in swiped and chip-based transactions as well and you need to be prepared to manage the resulting chargebacks.

One of the most common chargebacks resulting from a processing error is Reason Code 80. In this article I will review the causes for this type of chargeback, suggest actions you can take in response to it and examine the most effective preventive measures.

What Causes Reason Code 80

Chargeback Reason Code 80 is initiated in one of the following circumstances:

• The transaction amount was incorrect.
• An error was made when calculating the transaction amount.
• The transaction was processed using an incorrect account number.

The most common cause for Reason Code 80 is that the merchant made an error when entering the transaction information (typically that means keying in the wrong amount or account number).

How to Respond to Reason Code 80

As with all other chargeback types, your response to this reason code will be determined by the circumstances, which will most likely be one of the following:

*A transaction involving an incorrect account number is one that has posted to the wrong cardholder’s account. A transaction involving a non-matching account cannot be posted, as the account number does not exist and cannot be identified by the card issuer (in such cases Reason Code 77: Non-Matching Account Number will apply). In cases of invalid adjustments to the transaction amount, your processor will typically handle the resulting chargebacks automatically so you will never see them.

How to Prevent Reason Code 80

As with all other processing error-types of chargebacks, preventing Reason Code 80 is mostly a matter of implementing best payment processing practices. In a face-to-face environment, where the card was present, but you had to key-enter the account number (because for one reason or another the magnetic stripe or the chip on the card could not be read), make a manual imprint of the front of the card on the sales receipt. Compare the keyed and imprinted account numbers to make sure the transaction information was processed correctly.

The Takeaway

The only viable strategy for preventing chargebacks having to do with processing errors is training staff on proper card acceptance procedures. In the case of Reason Code 80, the emphasis falls on best practices for processing key-entered transactions and we have written in detail on that subject before. Staff should know how and when to use the manual imprinters. Additionally, they should be taught to double-check the key-entered information, which is where any error can come from in the first place.

The point is that, while processing errors cannot be prevented, they can and should be identified before the transaction is posted. It is the management’s responsibility to ensure that this is done.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management Kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

Fraud prevention is probably what we write the most about on this blog. Why do we do it? Well, primarily because fraud can be very costly and damaging to our merchants. Yes, fraud is also illegal and we all have a responsibility to do our best to prevent it, but this blog’s primary objective is to educate merchants on how to accept card payments securely and at the lowest cost. Identifying and catching the perpetrators of fraud, while very important, is beyond our purview, apart from alerting and assisting the authorities when we have relevant information.

With that in mind, it’s worth taking a step back for a moment and considering what makes fraud costly. You see, technically speaking it’s not the fraudulent transaction itself, but it is the subsequent chargeback that reverses the sale. So in a way, fraud prevention can be seen as a part of a larger chargeback prevention strategy. A case in point is chargeback Reason Code 81, which I will review in this article.

What Is Reason Code 81

Card issuers initiate chargeback Reason Code 81 only in card-present transactions and when they receive a sales receipt that is missing required transaction information, which is an indicator of fraud. More specifically, this reason code can be used in the following circumstances:

• The sales receipt is missing the cardholder’s signature or has no imprint of the face of the card and either: the cardholder states that she neither authorized nor participated in the transaction or the issuer states that there was no valid card with that account number on the transaction date.
• A card-present transaction charged to a fictitious account number for which authorization approval was not obtained.

This reason code cannot be used for recurring payments and card-not-present transactions.

What Causes Reason Code 81

Reason code 81 is typically caused, because the merchant:

• Did not swipe the card through the point-of-sale (POS) terminal.
• Did not take a manual imprint of the card on the sales receipt for a key-entered transaction.
• Did not obtain the cardholder’s signature on the sales receipt.
• Completed a card-not-present transaction, but did not identify it as such.
• Accepted a chip card, but processed it as a fallback transaction (i.e. via magnetic stripe, key-entry or paper voucher), and did not follow applicable acceptance procedures.

Card imprint is only required if the terminal is not chip-enabled. If a chip card information was keyed into a chip-enabled terminal, the transaction is considered a fallback and, if an authorization approval is obtained, cannot be charged back.

How to Respond to Reason Code 81

Your response to Reason Code 81 will be determined by the actions you’ve already taken (or failed to take) and the circumstances into which you will find yourself, the most common of which are examined in the table below:

*Cardholder signature is not required for transactions processed under the Visa Easy Payment Service (VEPS). Under this program, face-to-face merchants can accept cards for payments under $25, without requiring a cardholder signature or a PIN.

How to Prevent Reason Code 81

As usual, this type of chargeback can be prevented by following best card acceptance procedures. More specifically, for all card-present transactions you should:

• Obtain the cardholder’s signature on the sales receipt. The exceptions are chip-based (unless fallback procedures are followed) and transactions processed under the VEPS program. Always compare the signature on the sales receipt to the one on the back of the card. If they look different, make a Code 10 call.
• Obtain a record of the card’s number and expiration date on the sales receipt. You can do this by:
  • Swiping the card through the POS terminal or
  • Making a manual imprint of the face of the card on the sales receipt.

Of course, as always, training point-of-sale staff on proper card acceptance procedures is key.

The Takeaway

A high number of Reason Code 81 chargebacks can be an indicator of internal fraud. The best way to verify whether or not this is the case is to look into the sales receipts related to the chargebacks at issue and determine which POS terminals and staff were involved in these transactions. If you see a pattern, you should investigate further or may want to contact the authorities for assistance. You should definitely call the police if you confirm that a member of your staff is perpetrating card fraud, which is a criminal offense.

The more likely cause, however, would be that sales staff is insufficiently well trained on card acceptance procedures and operating your POS devices. If that is the case, we have developed plenty of educational resources to help you, which are freely available for download. Additionally, you can contact your POS vendor and request training on using their machines. There is really no excuse for not being able to accept payments properly.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management Kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

Most chargeback reason codes designate a specific, easily identifiable issue. There may be multiple causes leading to the chargeback, but they would all be linked to a single issue. Reason Code 76 is different, as it is used in various circumstances that do not always display any similarities.

Yet, there is a thread that can be traced through most Reason Code 76 chargebacks and it has to do with improper business practices. Although processing errors can certainly lead to this type of chargebacks, more often than not Reason Code 76 is initiated because the merchant hasn’t complied with specific industry requirements or has attempted to deceive the customer, or both. Let’s take a closer look.

What Is Reason Code 76

Chargeback Reason Code 76 can be initiated when a transaction is processed with an incorrect transaction code, or an incorrect currency code, or in one of the following circumstances:

• The merchant did not deposit a sales receipt in the country where the transaction took place.
• The customer was not informed that Dynamic Currency Conversion (DCC) would be used.
• The customer was not given the choice of paying in the merchant’s local currency.
• The merchant processed a credit, but did not actually process a reversal within 30 calendar days for a sales receipt posted in error.

So this type of chargeback can have multiple triggers. One of them would be a merchant issuing a credit, but posting the transaction as a sale. Another would be using a different currency to complete an order than the one that is actually transmitted through the processing system. Yet another would be not providing the customer with an option of paying in the merchant’s local currency (you are not obligated, however, to offer a choice of paying in the customer’s local currency!).

How to Respond to Reason Code 76

As is always the case, your response to this type of chargeback will be determined by the specific circumstances, for example:

So as you see, there are plenty of things you can do wrong that can cause Reason Code 76 and often you have no recourse. But it doesn’t have to come to that.

How to Prevent Reason Code 76

Preventing, or at least greatly limiting, the occurrence of this chargeback type has as much to do with following best payment processing practices as any other reason codes. It also has to do with developing, implementing and communicating customer-friendly policies. Here are some suggestions:

• Use the correct transaction codes. When issuing a refund, make sure to use the credit transaction code on your payment processing device. Make sure your staff is properly trained on how to do this.
• Comply with DCC requirements. If you offer DCC to your customers, make sure you do it properly. Your point-of-sale (POS) or web-based checkout solution should be programmed to automatically display the correct prompts to the cardholder. Make sure you provide accurate information about the costs of using DCC, as the service is expensive and a transaction can very easily be disputed if a customer feels cheated. Consider language differences, as DCC will often involve participation of cardholders speaking a language that is different from yours. Using multi-lingual POS materials is recommended. In a face-to-face environment, obtain a cardholder signature as a proof that they agreed to participate in a DCC transaction, in addition to the standard signature or PIN verification.

The Takeaway

A Reason Code 76 should be seen as a signal that you need to make an adjustment, either in your order processing procedures or in the way you communicate your policies to your customers. Or you might need to rewrite some of your policies altogether. Your customers must be provided with all transaction-related information before they check out. If you withhold information, whether you do it purposely or not, you’d be inviting disputes and chargebacks. You should not be doing it.

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management Kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).